Do You Have a Business Exit Strategy?

Exit Strategy - Selling a Business Selling a Business 

Most business owners plan to sell their business to fund their retirement. It is the number 1 reason for business owners, followed by burnout and new opportunities.   Yet, when it comes time to sell their business, less than half of all business owners plan ahead.

Deal Size #1 Reason #2 Reason
<$500K Retirement Burnout
$500 – $1MM Retirement Burnout
$1MM – $2MM Retirement TIE: Burnout/Opportunity
$2MM – $5MM Retirement New Opportunity
$5MM – $50MM Retirement Burnout
These stats are fom an IBBA.org article in early 2017.

Business owners assume their business is salable, but that is not always the case. By not having an exit plan and understanding the value of your business, you are taking a huge risk. Even if you are not ready to sell your business, you should get an annual estimate value of your business. Lakes Business Group can help. Our agents work with businesses in all industries and can provide an evaluation for your business with industry comparisons to help you properly prepare ahead.

Five Business Exit Strategies

Entrepreneur.com has a article with five primary exit strategies available to most entrepreneurs,  written by Stever Robbins.   Following is a short synopsis of these five strategies.

1- Just Take It:  One favorite strategy of forward thinking business owner is simple to bleed the company dry on a daily basis.  I mean pay yourself a huge salary, reward yourself with a gigantic bonus regardless of actual company performance, and issue a special class of shares that only you own that gives you ten times the dividends the other shareholder receive.  

2- the Liquidation: One often-overlooked exit strategy is simply to call it quits, close the business doors and call it a day.  I don’t know anyone who’s founded a business planning to liquidate it someday, but it happens all the time. 

3- Selling to a Friendly Buyer:  If you’ve become emotionally attached to what you’ve built, even easier than liquidating your business is the option of passing ownership to another true believer who will preserve your legacy.  Interested parties might include customers, employees, children, or other family members. 

4- the Acquisition:  Acquisition is one of the most common exit strategies: You find another business that wants to buy yours and sell, sell, sell. If you choose the right acquirer, your value can far exceed what would be reasonable based on your income. How do you select the right company? Look for strategic fit: Which acquirer can buy you to expand into a new market, or offer a new product to their existing customers?

5- the IPO (initial public offering): There are millions of companies in the U.S., and only about 7,000 of those are public.  If you’re funded by professional investors with a track record of taking companies public, you might be able to do it.  You start by spending millions just preparing for the road show, where you grovel to convince investors your stock should be worth as much as possible. (You even do a “reverse split,” if necessary, to drive up the share price.) Unlike an acquisition, where you craft a good fit with a single suitor, here you romancing hundreds of Wall Street analysts. If the romance fails, you’ve blown millions. And if you succeed, you end up married to analysts. You call that a life?

This is a small portion of the article titled “Exit Strategies for your Business” by Stever Robbins

Business Information Needed when Ready to Execute your Exit Strategy

Exit Strategy - Selling a Business Mergers & Acquisitions Selling a Business 

You’ve built your business and now ready to execute your exit plan.    When contacting your business consultant, they will ask for the following information to complete an offering memorandum outlining the details of the business.

FINANCIALS:

  • Notes/Liens/Liabilities
  • AR Aging Report
  • AP Report

CUSTOMERS/VENDORS:

  • Number of Customers in Database/Number of Active Customers/Customer Concentration
  • Number of Suppliers of Vendors/Supplier/Vendor Concentration

CONTRACTS:

  • Vending Contracts
  • Maintenance Contracts
  • Lease/Purchase Agreements

HUMAN CAPITAL:

  • Corporate Employee Chart
  • Employee Benefits Summary

CORPORATE MATTERS:

  • Corporate Documentation
  • Corporate Insurance Policy
  • Any Shareholders agreements

IF REAL ESTATE IS OWNED:

  • Floor Plans
  • Survey

MISC ENGAGEMENT DOCUMENTATION:

  • Partnership/Consent of Spouse or Corporate/Partnership Resolution
  • Licenses & Permit Documents & Process to Obtain Licenses and Permits
  • Copies of Patents, Trademarks, Copyrights, Etc.
  • Description/Documentation of Technology being used
  • List of products and services sold  Top 5 Income Producing Items
  • Any outstanding legal issues

Why a Business Broker – what do they do?

Buying a Business Exit Strategy - Selling a Business 

Most people don’t know what a business broker does.  In fact, it is said 9 out of 10 people have no idea why the role of a business broker is so important in the successful transfer of a business from one owner to another.  So how does having a business broker help in the sale of your business? business tranactions

1- Confidentiality protects the seller from their customers, suppliers, employees and others from finding out their business is for sale until it has been sold.  The potential buyers sign a non-disclosure agreement before knowing the name or location of the business.

2-Help provide a fair market value.   Based on their experience from previous sales and knowledge of the market helps determine the highest purchase price possible.

3-Have experience in handling complex issues in the sales process and anticipating them before they arise.

4-Can help remove some of the the stress and emotional challenges in the sale of the business.

5-The business owner can continue running their business while the business broker handles the marketing and inquiries for the business transaction.

6-Prepare a professional marketing package to attract the best possible and qualified buyers.

7-Screen out the time wasters and unqualified buyers who will not be able to get financing..

8-Act as a referral source to other professional advisers used in the sales process, such as attorneys, accountants, lenders and others when needed.

9-Prepare all offers to purchase on proper legal forms without needing expensive legal staff to draw up the offer terms and conditions.

10-Assist in due diligence process in making sure the buyer is informed on all the financial aspects of he business.

11- Keep the process moving forward by coordinating the landlord assignment of the lease and other details before the closing.

12- At the completion of the sale, business broker’s get their ‘success fee’ for their efforts in getting the deal done.

If you are thinking of selling you business, contact our office by phone or email and one of our agents can help.